🚨 KRW-CNY Exchange Rate Hits All-Time High at 202.41 won
Today Korean Economic News | 2025.03.26
📌 KRW-CNY Exchange Rate Hits All-Time High at 202.41 won
💬 The KRW-CNY exchange rate closed at 202.41 won on March 24, marking the highest level since the direct trading market opened in 2014. Despite the yuan's weakness, the Korean won fell even more sharply, leading to the exchange rate rise. Analysis suggests that multiple factors are at play, including US-China tensions, growth in Chinese manufacturing, and domestic political uncertainties.
1️⃣ Easy Understanding
The exchange rate between the Korean won and the Chinese yuan has reached an all-time high. I'll explain what this means for our economy and why this phenomenon is occurring.
An exchange rate is the ratio at which one country's currency can be exchanged for another country's currency. A KRW-CNY exchange rate of 202.41 won means that one Chinese yuan can be exchanged for 202.41 Korean won. As this figure increases, the relative value of the Korean won falls while the value of the yuan rises.
The recent all-time high in the KRW-CNY exchange rate means that the Korean won has depreciated against the yuan to a level never seen since the direct trading market between the won and yuan opened in 2014. What's particularly noteworthy is that the yuan itself is weakening against the US dollar, yet the Korean won is depreciating even faster than the yuan.
There are three main reasons for this phenomenon. First, as global economic uncertainties increase, the preference for safe-haven assets has strengthened, reducing the attractiveness of emerging market currencies like the Korean won. Second, differences in economic fundamentals between Korea and China are being reflected in the exchange rate. China is showing signs of economic recovery, particularly in manufacturing, while Korea's export recovery is slow and domestic economic conditions are sluggish. Third, Korea-specific factors such as domestic political uncertainties and North Korean risks are also affecting the won's weakness.
The rise in the KRW-CNY exchange rate has various impacts on our economy. First, it can temporarily improve price competitiveness in export competition with China. When the won's value falls more than the yuan's, Korean products can become relatively cheaper when converted to dollars. However, in the long term, there are side effects such as rising costs of raw materials and parts imported from China, increasing manufacturing costs, and greater burden on companies with yuan-denominated debt.
Experts project that additional increases in the KRW-CNY exchange rate will depend on the direction of US-China trade tensions, monetary policy directions of both countries, and the speed of Korea's economic recovery. It is time for the government and businesses to manage risks associated with exchange rate fluctuations while strengthening the economic foundation to enhance the long-term stability of the won.
2️⃣ Economic Terms
📕 Exchange Rate
An exchange rate is the ratio at which one country's currency is exchanged for another country's currency, serving as a basic indicator for international trade and investment.
- In a floating exchange rate system, exchange rates are determined by market demand and supply, reflecting the value of currencies.
- A rise in the won exchange rate means depreciation of the won, which is advantageous for export competitiveness but can cause import price increases.
📕 KRW-CNY Direct Trading Market
The KRW-CNY direct trading market, established in 2014, is a market for directly exchanging currencies between Korea and China, with the advantage of trading without going through the dollar.
- It increases the efficiency of trade settlements between the two countries and reduces currency exchange costs.
- Trading volume has been continuously increasing due to the deepening economic relationship between Korea and China and the trend of yuan internationalization.
📕 Currency Strength/Weakness
Currency strength refers to the phenomenon of a currency's value rising, while weakness refers to its value falling.
- It is influenced by various factors including economic fundamentals, interest rate policies, political stability, and international capital flows.
- Won weakness has positive effects such as improved export price competitiveness and increased value of foreign currency assets, but also has side effects such as rising import prices and increased foreign debt burden.
📕 Exchange Rate Volatility
Exchange rate volatility refers to the degree of change in exchange rates over a certain period, with high volatility indicating economic uncertainty.
- Excessive exchange rate volatility makes it difficult for businesses to plan and make investment decisions, increasing risk management costs.
- Central banks sometimes attempt to mitigate excessive volatility through foreign exchange market intervention.
3️⃣ Principles and Economic Outlook
💡 Analysis of Structural Factors in KRW-CNY Exchange Rate Rise
The record high in the KRW-CNY exchange rate reflects structural changes beyond short-term factors.
First, differences in economic growth trajectories between Korea and China are being reflected in the exchange rate. The Chinese economy struggled after COVID-19 but is recently showing recovery centered on manufacturing. China's Manufacturing PMI (Purchasing Managers' Index) for the first quarter of 2025 has surpassed 50.0, indicating expansion, and industrial production has shown over 5% year-on-year growth. In contrast, the Korean economy is heavily affected by the global trade slowdown due to its highly export-dependent structural characteristics. Economic growth forecasts are continuously being revised downward as recovery in key industries such as semiconductors, automobiles, and shipbuilding falls short of expectations. These differences in economic growth trajectories between the two countries affect investors' currency preferences, ultimately leading to the rise in the KRW-CNY exchange rate.
Second, US-China trade tensions and global supply chain restructuring are bringing structural changes to KRW-CNY exchange rate dynamics. As strategic competition between the US and China intensifies, global trade and investment patterns are changing. In particular, as global supply chains are being reorganized due to US tariffs on China, technology sanctions, and investment restrictions, the positions of China and Korea are changing. China is strengthening its domestic-centered growth strategy (dual circulation strategy) and focusing on increasing self-sufficiency rates in key industries. Meanwhile, Korea is trying to maintain strategic balance between the US and China, but changes in economic relations with China have become inevitable as it participates in US sanctions against China in advanced technology fields such as semiconductors. These geopolitical changes are acting as structural factors that also affect the relative values of both countries' currencies.
Third, changes in industrial structures and intensifying competitive relationships between the two countries are also affecting exchange rates. In the past, Korea and China formed complementary relationships in the manufacturing value chain, but competition has intensified recently. As China rapidly transitions to technology-intensive industries, it is increasing competitiveness in Korea's key industrial sectors such as semiconductors, displays, secondary batteries, and automobiles. In particular, Chinese companies' global market share is rapidly expanding in new energy fields such as electric vehicles, solar power, and wind power. These structural changes in industry affect the growth potential and trade relationships of both economies, which is also reflected in currency values. Especially as China creates higher added value through industrial advancement, a long-term trend is forming that deviates from the previous "low yuan-high won" structure.
Fourth, differences in financial market openness and internationalization levels are also acting as structural factors. The won adopts a fully floating exchange rate system and has a relatively open capital market, tending to react more sensitively to global fund flows. In contrast, the yuan maintains a managed floating exchange rate system, with the Chinese government controlling the range of exchange rate fluctuations to a certain extent. These differences in exchange rate systems and capital market openness create differences in how both countries' currencies respond to external shocks. Additionally, as the yuan's internationalization progresses and its status as an international settlement currency rises, global demand for the yuan is increasing. In contrast, the won still has a limited status as an international settlement currency, tending to show relatively greater volatility when global uncertainties expand.
These structural factors are working together to form a trend of rising KRW-CNY exchange rates. In particular, this record high should be interpreted as an important signal reflecting changes in Korea-China economic relations and global economic structures beyond short-term market volatility. Differences in economic growth models, industrial competitiveness, trade relationships, and financial market structures between the two countries are being reflected in currency values, and as long as these structural factors persist, the upward pressure on the KRW-CNY exchange rate is likely to continue.
💡 Impact of KRW-CNY Exchange Rate Rise on the Korean Economy
The rise in the KRW-CNY exchange rate has complex effects on various aspects of the Korean economy.
First, it's necessary to examine the impact on export competitiveness to China and the trade balance. When the won weakens more significantly than the yuan, theoretically, the price competitiveness of Korean products exported to China can improve. This is because even when producing the same product, its price when converted to yuan can become relatively cheaper. However, the actual impact may vary by industry. For consumer goods or some intermediate goods with high price elasticity, the exchange rate effect may be pronounced, but for high value-added capital goods or differentiated products, technological prowess or quality may be more important competitive factors than price. Also, when Korea and China compete in third-country markets (e.g., home appliances, automobiles in the US or EU markets), won weakness can contribute to improving the price competitiveness of Korean products. However, China may also tolerate yuan weakness to promote its exports, so it's necessary to pay attention to relative value changes between currencies.
Second, the impact on imported raw material costs and manufacturing costs is also an important consideration. Korea imports various raw materials and intermediate goods from China, and the rise in the KRW-CNY exchange rate increases the won-denominated prices of these imports. Especially for raw materials where China is a major supplier, such as rare earth elements, magnesium, and graphite, cost increases due to exchange rate rises can burden the profitability of Korean manufacturers. It can also affect domestic prices, potentially causing price transmission effects from import prices to producer prices to consumer prices. This may be particularly pronounced in energy-intensive industries or industries with high dependence on China.
Third, it also affects companies' balance sheets and financial situations. Korean companies that invest in China or hold yuan-denominated assets can gain valuation profits as asset values increase in won terms when the KRW-CNY exchange rate rises. On the other hand, companies with yuan-denominated borrowings experience increased repayment burdens. In particular, Korean companies operating local subsidiaries in China may experience changes in consolidated financial statements through translation gains or losses. Financial institutions may be exposed to exchange rate risks due to mismatches between yuan-denominated assets and liabilities, requiring careful management.
Fourth, it can also have significant impacts on investments and capital flows. If the KRW-CNY exchange rate rise continues, the cost of direct investment in China by Korean companies will relatively increase. This can be a burden for companies planning to expand local production facilities or make new investments. Conversely, Korean assets may become relatively cheaper and more attractive for Chinese investors. There's a possibility of increased inflow of Chinese capital into Korean assets such as real estate, stocks, and bonds, which can affect asset prices and domestic financial markets. Exchange rate changes will also be an important variable in merger and acquisition (M&A) activities between the two countries.
The impact of the KRW-CNY exchange rate rise can vary by industry and company, and it's necessary to analyze short-term effects and long-term effects separately. In the short term, improved export price competitiveness can have positive effects, but in the long term, there can be challenging factors in various aspects such as rising import costs, inflationary pressures, and changes in the investment environment. Companies should consider strategies such as exchange rate risk management, price strategy adjustments, and supply chain diversification in response to these exchange rate changes.
💡 Future Outlook for KRW-CNY Exchange Rate and Response Strategies
The future movement of the KRW-CNY exchange rate will be determined by various factors, and it's necessary to prepare response strategies.
First, let's look at the main variables affecting short-term exchange rate outlook. The direction of US monetary policy is a key variable directly affecting global dollar strength/weakness. Recently, as the possibility of a Federal Reserve rate cut has increased, expectations for a dollar weakness transition have grown, but uncertainty remains about the timing and extent of rate cuts as inflation concerns persist. China's economic stimulus policies are also an important variable. If the Chinese government announces additional stimulus measures for real estate market stabilization and consumption promotion, it could positively affect the yuan's value. The direction of US-China trade tensions is also a factor to watch. If trade tensions ease, improved global risk preference could be positive for both the won and yuan as emerging market currencies, but if tensions intensify, the won may be more affected than the yuan. The improvement of Korea's economic fundamentals is also important; if export recovery strengthens and domestic revitalization occurs, it will contribute to won stability.
Second, the mid to long-term KRW-CNY exchange rate outlook will be more significantly affected by structural factors. The economic growth rate gap between Korea and China is an important factor determining the long-term exchange rate trend. If China maintains 4-5% growth and Korea remains at 2-3% growth, upward pressure on the KRW-CNY exchange rate may persist. Changes in industrial competitiveness are also major variables. If Korea maintains competitive advantages in advanced industries and succeeds in transitioning to high value-added industries, it will help stabilize the won's value. Conversely, if China strengthens its innovation capabilities and succeeds in industrial advancement, it could be a factor for long-term yuan strength. The change in positioning of Korea and China in the global supply chain restructuring process is also important. If Korea secures an advantageous position in US-led "friendshoring" and strengthens its role in the global value chain, it can contribute to the won's recovery.
Third, it's necessary to consider policy response measures. Central bank intervention in the foreign exchange market can effectively mitigate excessive exchange rate volatility in the short term. However, since it's difficult to change the market's basic flow, selective and limited intervention is desirable. Expanding currency swaps is also worth considering. Expanding the size of currency swaps between Korea and China and increasing their utilization can help secure foreign exchange liquidity in times of crisis. Strengthening external soundness is also important. It's necessary to enhance defense against external shocks through foreign exchange reserve expansion, external debt structure improvement, and strengthened monitoring of capital inflows and outflows.
Fourth, corporate response strategies are also important. Strengthening exchange rate risk management is essential. Companies should manage exchange rate volatility risks using various hedging tools such as forward exchange contracts, currency swaps, and options. Especially companies with significant trade or investment with China need to systematically manage risks associated with KRW-CNY exchange rate fluctuations. Supply chain diversification should also be considered. Companies can review raw material or parts procurement structures that are highly dependent on China and secure alternative suppliers to disperse cost risks associated with exchange rate fluctuations. Transitioning to high value-added businesses is also important as a long-term strategy. Companies need to build a business structure that is less sensitive to exchange rate fluctuations by strengthening non-price competitiveness such as technological prowess, brand, and design, moving away from simple price competition.
The record high in the KRW-CNY exchange rate may be a signal of structural change rather than a temporary phenomenon. The government and businesses need to establish strategies from a mid to long-term perspective along with short-term responses. Particularly important are efforts to enhance the fundamental stability of currency value through strengthening industrial competitiveness, improving economic fundamentals, and enhancing financial stability. Since exchange rates ultimately reflect the relative value of national economic power, building a sustainable growth model and industrial innovation will be the long-term solution.
4️⃣ In Conclusion
The KRW-CNY exchange rate hitting an all-time high of 202.41 won is an important signal suggesting changes in the economic dynamics between Korea and China beyond simple market volatility. While the yuan itself is showing weakness amid global uncertainties, it's noteworthy that the won is showing even greater weakness, leading the exchange rate rise.
Various structural factors are at play behind this phenomenon, including differences in economic growth trajectories between the two countries, US-China trade tensions and global supply chain restructuring, changes in industrial structures and intensifying competitive relationships, and differences in financial market openness and internationalization levels. Particularly, as China shows signs of economic recovery and strengthens growth momentum centered on manufacturing, while Korea's recovery progresses slowly within its export-dependent economic structure, the difference in relative outlooks between the two economies is being reflected in the exchange rate.
The rise in the KRW-CNY exchange rate has complex effects on the Korean economy. In the short term, there's a positive aspect that export price competitiveness in the Chinese market and third-country markets may improve. However, in the long term, negative impacts such as increased costs of Chinese raw materials and intermediate goods, rising manufacturing costs, and expanded burden of yuan-denominated debt cannot be ignored. Particularly, as impacts may vary by industry and company, detailed analysis and responses are needed.
In the future, the KRW-CNY exchange rate will be affected by various variables including the direction of US monetary policy, China's economic stimulus policies, the development of US-China trade tensions, and the improvement of Korea's economic fundamentals. While volatility is likely to persist in the short term, structural factors such as the economic growth rate gap between the two countries, changes in industrial competitiveness, and positions within the global supply chain will play more important roles in the mid to long term.
At the government level, policy responses such as strengthened foreign exchange market monitoring, selective market intervention, expanded currency swaps, and enhanced external soundness are needed. Companies should respond to exchange rate volatility through strengthened exchange rate risk management, supply chain diversification, and transition to high value-added businesses.
In conclusion, the record high in the KRW-CNY exchange rate can be seen as an important milestone showing a new phase in global economic structure changes and Korea-China economic relations. As this provides challenges as well as opportunities, the government and businesses should continue efforts to strengthen economic fundamentals and enhance industrial competitiveness from a mid to long-term perspective along with short-term responses. Particularly, since exchange rates ultimately reflect the relative value of national economic power, enhancing fundamental competitiveness will be the key element for long-term currency value stability.